Thursday, March 13, 2008

Americans Start to Curb Their Thirst for Gasoline

By ANA CAMPOY March 3, 2008; Page A1 Wall Street Journal

As crude-oil prices climb to historic highs, steep gasoline prices and the weak economy are beginning to curb Americans' gas-guzzling ways.In the past six weeks, the nation's gasoline consumption has fallen by an average 1.1% from year-earlier levels, according to weekly government data.That's the most sustained drop in demand in at least 16 years, except for the declines that followed Hurricane Katrina in 2005, which temporarily knocked out a big chunk of the U.S. gasoline supply system. (link)

Commentary: What a concept! If something cost more people will consume less of it.

This is not rocket science. This is basic Economics 101.

The reason we have not seen an even greater reduction in consumption is because prices are not high enough for a long enough period of time. People look at high gas prices as an anomaly and think they will come back down. If gas prices reached, say, $5 a gallon and people did not expect prices to fall, is there any doubt that people would change their consumption patterns? Would that young family contemplating a housing purchase be as likely to more to the far-flung suburbs if gas was $5 a gallon as they would when it is $2.50 a gallon? When contemplating a car purchase, would MPG matter less or more if gas were $5 a gallon?

The other thing that would change if gas reached $5 a gallon and stayed there is that alternative renewable energy, technological innovation, and conservation would flourish. Automakers are already producing hybrid vehicles and developing new improved batteries. If gas cost more the alternative would be cheaper in comparison. The only thing holding back the alternatives is that they cannot compete with cheap gas.

For those who do not believe global warming is real, I can understand why they would oppose efforts to combat it. What I do not understand is why so many environmentalist who claim to care deeply about the issue of global warming are wasting their energy advocating feel-good measures and meaningless cajole and control schemes rather than getting behind a gas tax.

Some argue that sustained higher gas prices would be detrimental to the economy. If a gas tax was revenue-neutral and any increased revenue from a gas tax was off set, dollar for dollar, by an income tax reduction, a gas tax should have no detrimental effect on the economy. In fact, a reduction in the tax on income could result in greater production of income.I would much rather tax carbon, which I think is not desirable, than to tax income which I think is desirable.

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